Strict lockdowns slowed growth to 0.4% in the second quarter. The growth target of 5.5% by the end of the year is practically unattainable. Beijing bets on investments in infrastructure to recover. Looking ahead to the 20th Communist Party Congress, Xi needs an economic recovery.
Beijing () – Xi Jinping’s “Covid zero” policy, with rigid lockdowns and repeated massive tests, has plunged China’s gross domestic product in the second quarter of the year. According to official data, in the April-June period the national GDP only grew by 0.4% year-on-year, a level much lower than the experts’ forecasts, which placed it at around 0.9-1%.
It is the worst performance of the Chinese economy since 1992, excluding -6.9% in the first quarter of 2020, with the rise of the first pandemic wave. Looking at the first quarter of the year, the picture is even worse, with an economic contraction of 2.6% (expectations were -1.5%).
Forecasts point to a slow improvement between now and the end of the year, but those prospects are threatened by the risk of a global recession, problems in global supply chains and the continued resurgence of Covid-19 outbreaks in the country. At the current rate, all analysts agree that Beijing will not be able to reach the annual growth target set at 5.5%; in the first half of the year it stood at 2.5%.
To demonstrate the recovery, Beijing points to a vast investment plan in infrastructure, which should be around 500,000 million yuan (about 74,000 million euros). Chinese authorities highlight the improvement of the economy in June, after the confinement in Shanghai and Beijing ended. Last month, industrial production grew by 3.9% in one year, fixed investments by 6.1% and, above all, consumption by 3.1%.
Compared to May, unemployment fell from 5.9% to 5.5%, but youth unemployment soared to a record high of 19.3%. Figures that run the risk of keeping consumption low and also confirm an obvious social problem in relation to young people.
Observers also point out that house prices and real estate investments have fallen, adding another obstacle to the recovery. The government also has little room to reduce interest rates and inject liquidity into the domestic market. Rates are already low and a further drop would push investors toward higher yielding US bonds.
If there is no decisive recovery, Xi could see his position weakened before the 20th Congress of the Communist Party of China next fall, forcing him to further compromise with his opponents in the Party to stay in power.
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